Earlier this week I linked to a Rolling Stone article written by Matt Taibbi which gave the best account I’ve ever read of the corrupt activities of certain financial organisations. These are the companies who led us to the brink of financial doom last year; now they’re doing it again.
The brilliance of Taibbi’s critique is that he creates a witty and clever connection between the activities of con artists and the way banks and hedge funds operate. The comparison is not a metaphor – it’s an allegation. These people are stealing money, from us! (the examples Taibii gives are all to do with Wall Street, but hey, it’s exactly the same over here and in other parts of the world).
But oh gosh, sigh – what can we do? Nothing I guess, so let’s just roll over and -
HOLD ON A MINUTE. Let’s get this clear. There’s a reason this feature is called the Battle Between Good and Evil; because it’s a battle and those suckers are EVIL. (They may also be very nice human beings in other respects – cultured, loved by their families and kind to dogs. But guess what: these are the guys who will one day know what it’s like to have a grandchild spit in their eye, and say ‘Grandad, there are no jobs anymore, and the cashpoint machines don’t work, and I can’t afford to go to college – and it’s all YOUR fault.’)
Because there will undoubtedly be dire consequences if we continue on our present path of doing nothing. The collapse of Western civilisation is unlikely, but not impossible. Companies going bankrupt is one thing; countries going bust is another. And that’s close to happening now, and will certainly happen next time the dominos take a nasty tumble.
The enemy here is mild moderation. Take this article, in the UK Guardian - it rebukes the bank Royal Bank of Scotland chief Stephen Hester for paying staff £1.3 billion in bonuses at a time when the company has posted losses of £.6 billion; and warns him and other rich execs to ‘stop complaining’.
Never mind stop complaining – pay the damned money back! Then spend a year working as a nurse or an ambulance driver, and see what a REALLY hard job is like.
Because – as we all know – no privately owned ‘real business’ could ever issue vast bonuses when the company is making a loss! It’s lunacy, and lunatics should not be running such a big and important organisation.
But the mild moderation is part of the Big Con. ‘We are the grown ups’, that’s the subtext. ‘Don’t make a fuss about nothing.’ And, the real killer (bear in mind that ALL these top finance guys seem to be middle aged men) is the patronising assumption that ‘Daddy knows best.’
Why am I reminded of the scene in Titanic when the ship’s crew insist on sending down lifeboats of first class passengers even though they are half empty, while the third class passengers are locked up in steerage? Oh I know why – BECAUSE IT’S THE SAME. We rage at obscene immorality when we see it in movies, but we give in to it meekly when it’s our actual lives. Because no one wants to be seen as a RANTING RAVING ANGRY PERSON. But – why not, if the anger is justified?
I say all this as a dyed-in-the-wool capitalist. I like capitalism! Capitalism is what gives me my iPod, my computer, restaurants at the top of the hill and bookshops with cafes. It’s a great system, for me, though I know I’m lucky. And I’m in no hurry to live in a yurt on a hillside in North Wales, tending goats and growing vegetables.
This is the way capitalism is SUPPOSED to work: A bold person has a idea for a new business, borrows money from his or her family and the bank and puts up some of his or her own savings, and launches the business. It does well! He or she then sells a large stake in the business to a venture capital/private equity firm or floats it on the Stock Exchange or the Alternative Investment Market and thereby makes big bucks. The big bucks are the entrepreneur’s reward for having the idea, seeing it through, risking bankruptcy, living with stress – all those things. And I doubt if anyone would put themselves through all that shit without the prospect of making a fortune at the end of it.
And okay – if you hate capitalism, you won’t like even this idealised version of it; it’s based on cruel meritocracy and ruthless competiton, and because it’s a system which distributes wealth disproportionately, it is rendered socially acceptable only by the dream we all have of making it big through our own talents OR (everyone’s plan B) winning a fortune on the lottery.
But that’s not what we have any more. Here’s how it works these days: The entrepreneur sets up his or her business, has a couple of sticky years and can’t get loan capital from the back to fund the ACTUALLY QUITE VIABLE BUSINESS and the company then goes belly up. The banks, meanwhile, using money they’ve embezzled from tax-payers, embark on complex deals which (by fraudulent means) enrich them, but contribute nothing to society.
And to cap it all, these modestly talented managers without an enterpreneurial bone in their bodies think they are Masters of the Universe. They’re not! They’re just middle-men. But the middle happens to be where, um, all the money is kept.
Anyway, we all read the papers; we all know this stuff. My question is; what can we do?
I think I have an answer.
Before I explain my idea, I should stress that I don’t, not for a second, speak as an authority on financial affairs; for the facts in detail, look to Taibbi, and look to your own newspaper. No I’m just the guy who believes that if your house is on fire – you should shout Fire! and then dial 999.
Anyway: if we accept Taibbi’s argument that what the investment banks and hedge funds are doing IS a form of organised crime, then the answer in my view is simple.
It’s called RICO.
RICO is a word that gets mentioned a lot in The Sopranos. It’s a word that scares mobsters. It’s not just a word, it’s a concept that was introduced to avert the very real possibility that organised crime was going to end up running all of America in the pre-1970 period known (by gangsters) as ‘the Golden Age’.
RICO (Racketeering Influenced and Corrupt Organizations Act) is a piece of legislation which decrees that anyone working for an organisation which is guilty of certain criminal offences can be arrested and charged, and obliged to pay financial penalties, and also sued in the civil courts. It’s used against Mafia bosses but has also been employed against other corrupt organisations.
And it can most certainly also be used against white collar criminals. Indeed, the drafter of the bill, Professor George Robert Blakey, wrote: ‘We don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.’
Hey, Prof, you got that right!
Of course, it may be that Taibbi is WRONG in his analysis of the way these financial organisations are operating. Let his analysis be tested, by smart lawyers and prosecutors; and if he’s substantially wrong, fair enough, I’ll shut up. But if he’s right – if the way Wall Street operates amounts to con artistry, then RICO surely applies.
And there have already been cases where RICO has been applied to very similar offences. Financier Michael Milkin was arrested under RICO statutes for insider trading. And Scott W. Rothstein is currently accused under the RICO laws for operating a Ponzi scheme – which is what Taibbi alleges the banks were and are doing with their credit swap schemes.
Obviously, of course, we do need to get this into perspective. Much of what the banks do is fine, and indeed essential to the functioning of our complex technological consumer society. And it’s certainly not the case that all bankers are corrupt; and much of the baffling stuff like short-selling and futures markets do in fact serve a valuable role in creating ‘liquidity’; and liquidity is the oil that keeps the machine of capitalism running.
And it’s also the case that, whether we like it or not, not all the things we disapprove of are illegal. Being a smug bastard in a pin-stripe suit is not, and nor should it be, a crime.
But Taibbi alleges very specifically that THE KEY PEOPLE INVOLVED IN THE SHIT THAT WENT WRONG DO KNOW WHAT THEY ARE DOING, AND MUCH OF WHA T THEY ARE DOING IS CROOKED.
So let’s test that accusation.
The laws are there to be used; and the reason they haven’t been used is fear. If the banks are too big to fail, they’re certainly too big to be dragged through the courts. But the threat and indeed the reality of prosecution has to be there…otherwise we will end up with another financial collapse, from which we might not recover.
Anyway, that’s my small contribution to the debate. But will anyone out there take up the challenge?
Well of course not. The world is far more wicked than that. And if you read Taibbi’s other piece on naked short-selling, you’ll gather by the end who shakes the hand of whom and why, frankly, we might as well all give up.
But this is a rant, so I’m going to give myself licence to pretend there IS some hope.
So, assuming there is justice in the world, what’s the merit of the RICO strategy, as opposed to utilising any of the many regulatory bodies and their many regulations to, in a subtler and more softly-softly way, rein in the bad boys?
It’s the PRINCIPLE, dammit! These people haven’t stolen paper clips, they’ve stolen tens millions, and squandered hundreds of millions more. And they should be treated like any other criminals – fairly, with every chance to present their defence, but with the full wrath of the law lurking in the background if they prove to be Guilty as Charged.
And it’s the PRECEDENT. The very mention of RICO will spread fear among people who ought to be afraid. It’s already well established that individual fraudsters who use the Ponzi scheme can be arrested and sent to jail, sometimes for staggeringly long terms (see Bernie Madoff.) And everyone knows that major companies involved in complex financial shennanigans can also face prosecution if they break the law – as we saw with Enron. But firms working in Wall Street and the City of London and other financial centres have been told they are above the law, immune from prosecution, untouchable. That’s the message we get, and that they get; and it’s WRONG.
A single RICO prosecution would change that perception, and would, I predict, change the behaviour of financiers radically.
And if it were clearly decreed that flagrantly illegal activities will from hereon in be classified as ‘racketeering’, then some sanity might start returning to the markets.
I’m talking here about the Swoop and Squat. Naked Short-Selling. Asset-Stripping. The Selling of Toxic Assets,’The Pig in the Poke – all the cons which Taibbi so brilliantly anatomises in his article.
Or there’s what Taibbi calls the Dollar Store scam, whereby, at the height of the financial crisis, investment banks presented themselves to the Fed as commercial banks; received loans at zero interest; then used the money to buy Treasury bills that paid interest of three or four per cent. Goldman Sachs did this, and made huge profits. No wonder! That kind of behaviour may not technically be ‘fraud’, but there’s a strong chance it would be considered as ‘racketeering’. Because these guys are just taking the piss!
Remuneration committees are also a form of racketeering which Taibbi doesn’t touch on in his piece, though I’m sure he has elsewhere. The idea is that independent Committee Members make objective decisions about how much a CEO and other key Board members in a company should earn. But the scam is that I sit on your remuneration committee, and vote you a salary of, let’s say, £100M a year; then you sit on my remuneration committe and vote ME a salary of £99M a year. We’re both happy! Then we go to Vegas, hire a suite, and buy ourselves a hundred hookers. What’s not to like?
Except – these mega-salaries impoverish companies, and are an affront to natural justice. It’s just too much to pay, for the jobs these people do; and it’s bad for the industry, and bad for the world.
The other trick the banks are currently playing is a form of Extortion Racket. If we don’t pay these vast bonuses, these smooth talking souls tell us, we’ll lose all our best people and start making huge losses which will cripple the economy. And you wouldn’t want THAT!
But if all the doctors in the country insisted on being paid £10M a year each – with the tacit threat that if they are paid less they’ll stop working and let patients die in their thousands – no one would accept it. It would be seen as naked blackmail, and I’m sure the government would start throwing people in jail, ‘pour encourager les autres’, as the French nicely put it. The difference, though, is that doctors would never DO a thing like that that; they are a profession with a moral code, and integrity. Bankers – as they openly brag – can’t help themselves.
The danger of course is that by taking criminal action against one financial institution, there’s a risk the whole house of cards may come tumbling down. But remember, there are some astonshingly arrogant and shortsighted guys at the top; and they are doing their damnedest to shake their own house of cards down. And when it falls, it will fall big.
My abiding fear is that if we DON’T take a step as bold and shocking as this, we’ll end up with a devasting out-of-control crisis that will wreak havoc with the lives of millions and which will, eventually, lead to a broken system that is far worse than what we deserve. We could, in short, end up losing the best of capitalism - the enterprise, the energy, the amazing new ideas, the investments in new ventures, the availablity of credit when we’re broke or want to buy a house we can’t afford, the whole lifestyle, frankly, of 21st century man and woman. I’m no Marxist – I really want to keep my iPod! But the Robber Middle-Men are getting so greedy, they risk jeopardising everything.
Or, as Taibbi puts it: ‘We’re in a place we haven’t been since the Depression. Our economy is so completely fucked, the rich are running out of things to steal.’
Er – so let’s stop them?
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